New liquor fee in state budget to fund highways, clean water

AUGUSTA, Maine — A little-noticed provision in the new state budget requiring a renegotiation or extension of the contract for wholesale liquor sales in the state will provide additional resources for transportation programs, drinking water programs, state reserves and other state programs.

“This is a different way to handle the liquor contract that will provide some new and ongoing resources,” said Rep. Pat Flood, R-Winthrop, co-chairman of the Legislature’s Appropriations Committee.

Flood authored that section of the budget that requires the existing contract, which runs out in 2014, be renegotiated by June of 2013 with an upfront payment of at least $20 million. The language also spells out how money from the new contract will be distributed with 15 percent allocated to the safe water and clean water programs, 20 percent to the highway preservation and rehabilitation paving program, 30 percent to the budget stabilization fund and 35 percent to the General Fund.

“This is a well-thought-through and comprehensive approach,” said Rep. Peggy Rotundo, D-Lewiston, the lead Democrat on the panel. “I think Rep. Flood has done a wonderful job putting this together.”

Story continues below advertisement.

She said structuring the payments to meet needs such as matching funds for federal water project funds is a creative approach. Most water projects generate $90 in federal money for every $10 the state provides. There is a backlog of hundreds of millions of dollars in projects across the state.

“This is a significant source of additional revenues for some important programs,” said Sen. Richard Rosen, R-Bucksport, the panel’s co-chairman. “Rep. Flood put a lot of time and effort and thought into this.”

He said the amounts the section will generate are significant and are important in that they will provide new revenues without raising taxes. The current contract generates about $18 million a year in payments on top of liquor taxes. The projected payments for the next two years total $15.6 million.

Finance Commissioner Sawin Millett said that looking back the existing state liquor contract, struck in 2004, was not a very good deal.

“We are probably looking at a loss of what could have been the revenue stream had we not contracted out,” he said. “On a go-forward basis, I think the contract is likely to be worth certainly well over double what we got in the current contract, maybe more like $350 to $400 million.”

In 2004, The state got $125 million upfront to balance the state budget. Millett’s estimate is in line with a 2009 study done by the accounting firm Deloitte & Touche, at a cost of $150,000, that put a 10-year value on the liquor sales contract at $380 million.

Millett said the language used by Flood in the budget will help in negotiations. He said the large upfront payment like in the 2004 agreement was less attractive to bidders than the smaller upfront payment set in the budget language.

“It’s more of an incentive to a bidder because they are not putting present-value dollars out there for the huge portion of an upfront payment,” he said. “I think that will attract more lucrative bidding.”

Millett said the contract also will help ease the structural gap in the budget for the 2014-2015 budget cycle.

“My optimism is pretty good that we are really not looking at what we call ‘tails’ in the out years from the tax relief program,” he said. “This additional revenue stream will help.”

Millett was referring to concerns raised that the $153 million in tax relief in the current budget will cost in excess of $400 million in the next two-year budget.

If the state took over the wholesale business in 2014, when the current agreement ends, the 2009 study estimates the state would get $40 million a year in revenue from wholesale liquor sales in addition to the taxes collected on retail sales.

In 2004, the state Bureau of Alcoholic Beverages and Lottery Operations ran the wholesale liquor distribution system. It still sets wholesale prices for liquor and approves any new spirits for sale in the state. The state also approves promotions and product introductions.

The state first awarded the contract for liquor distribution to Martignetti Cos. of Massachusetts in January 2004. But the Maine-based losers threatened lawsuits and a new partnership was formed by Martignetti, Pine State Trading Co. of Augusta and Lindsay Goldberg, a New York financial group that holds majority interest in Maine Beverage.